Euro zone borrowing costs were mixed on Monday, with US Treasury yields settling around their recent highs while a weak economic outlook weighed on expectations for European Central Bank policy rates. Markets awaited data on euro area negotiated wages on Wednesday and PMIs on Friday.
Analysts see US yields roughly unchanged in the near term as markets have priced a so-called red sweep, with Donald Trump as the new US president and the Republican Party controlling both the House of Representatives and the Senate.
Euro zone yields rise after better than expected data
Investors expect Trump’s policies, which should include tariff and tax cuts, to boost inflation and interest rates. Germany’s 2-year yield, which is more sensitive to expectations for ECB policy rates, rose one basis point (bp) to 2.13%. It hit 2.091% on Friday, its lowest since Oct. 24.
Markets priced in an ECB deposit facility rate at 1.9% in July, while fully discounting a 25 bps rate cut in December and a 20% chance of a 50 bps move.
Germany’s 10-year yield, the benchmark for the euro area, was down one bp at 2.34%. Italy’s 10-year government bond yields, the benchmark for the euro area periphery, dropped one bp at 3.54%.
It hit 3.521% on Friday, its lowest since Oct. 30.
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